Written Commentary
GOLD / SILVER
While the net takeaway from several US Federal Reserve speeches yesterday was not patently dovish, strength in treasury bond prices and signs the dollar rally is fizzling suggest some markets interpreted Fed news yesterday as dovish. However, generally dovish chatter in the market has not provided gold with any support which clearly points to a bearish preference by the trade. With an avalanche of global central banker speeches this morning and the Fed Chairman yesterday indicating he thinks Fed economic forecasters need to be open-minded and consider inputs beyond typical indicators gold isn’t even looking for bullish prospects. In fact, one Fed member yesterday indicated that global geopolitical tensions could become a factor in the Fed’s upcoming decision process and that should have provided better support for gold. However, with gold and silver prices diverging yesterday, it seems the gold market will remain under financial market/flight to quality liquidation pressures while silver might manage to find support from a slight improvement in economic sentiment flowing from lower treasury yields, the largest monthly decline in 30-year mortgages in 16 months and ongoing but minimal optimism flowing from US equities. Unfortunately for the bull camp bearish sentiment in gold is very apparent given the significant damage on the charts, and there is little in the way of close-in logical support on the charts. Silver remains vulnerable with a lack of sensitivity to softer rates and a measure of optimism flowing from this week’s pattern of higher highs in US equities. Furthermore, silver continues to violate key technical levels and lacks credible close in support.
COPPER
While a slight contraction in Chinese consumer prices overnight is not a major sign of economic weakness, the trade has interpreted the data as a sign the Chinese economy remains mired in economic mud. Therefore, positive Chinese copper import news from earlier in the week is considered “old news” and prices continue to see pressure from forward demand fears. Furthermore, with a sharp range down six-day low in December copper, a full technical reversal from last week’s rally is clearly underway. As we have indicated several times over the last week, the rally off the October low was not justified by bullish fundamental developments in place last week nor was it the result of an extension of the pattern of falling LME and Shanghai copper warehouse stocks as those patterns reversed at the end of last week which means initial declines this week simply removed undeserved premium with upcoming declines deserved by China news.
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